Stake Ethereum 6 Ways 2022
Are you looking at the best ways to Stake Ethereum? Here you will learn the six ways to stake your Ethereum or ether tokens. These methods are classified based on difficulty, reward, and risk. Starting with the easiest ways to stake ETH2.0 and then the most difficult. The reward that you’ll get on your ETH staking generally tends to increase as the difficulty increases. Although it’s not exactly linear and there is a couple of exceptions.
Stake Ethereum through centralized exchanges
The first and easiest way that you can Stake Ethereum is through a centralized exchange, for example, coinbase or Binance. This is the simplest way to stake ETH. You purchase Ethereum and stake it in exactly the same platform. It’s only a couple of clicks and you’re done. For example with coinbase once you’ve purchased Ethereum, you’ll have an opportunity to stake it. The same thing applies to Binance, once you purchase eth on the platform, you can stake it easily with just a few clicks.
Obviously, this method of staking is not without its risks. For example, if what happened recently to FTX happens to coinbase or to binance. Then you could be at risk of losing the ether token that you stake with them. That’s definitely a risk you take if you stake with any centralized staking service, where you are not in control of your own ETH tokens. You are basically giving it to someone and they are staking it for you. You have to trust that they are actually going to pay the percentage return and also be able to return the full amount of the ETH that you staked whenever you want it. The major risk with this method of staking is that the centralized exchanges may be hacked or get problems like FTX.
When it comes to the rewards of this method of Staking Ethereum. You’re going to get slightly less than you would if you staked completely by yourself. For example, the coinbase validators are going to take a small percentage of the staking yields. It’s important to say at this point if staking yields are actually variable and it depends on how many people are staking ETH at any given time and also on how many people are using the network. Because as people complete transactions then those people give small tips to the people that are validating the transactions. Which comes through in the yield as well and so it does vary. Currently, it’s approximately 5.3% APR but it is a variable rate. You won’t get the full amount if you stake through coinbase. For example, they will take a small percentage of it. So you’ll get slightly less than 5.3 or whatever the variable rate is at the time when you stake your eth.
Liquid Staking Derivative
The second easiest way to Stake Ethereum is to purchase something called a liquid staking derivative. That sounds complicated but the beauty of liquid staking derivatives is that you exchange ether for State ether tokens (STETH). This represents the value of Ethereum and they actually increase in value over time as the rewards for staking accrue to them. One perfect example is Lido. The largest provider of the service but there are others including Rocket Pool, StakeWise, and Stakefish. If you give 1 ETH to Lido then they’ll give you 1 ETH back in exchange. Then over time, the value of that will actually accrue and it’ll be worth more than 1 ether. The benefit of this staking model is that you can actually sell your staked eth tokens whenever you want. Whereas if you’re actually running your own validating node, you can’t currently withdraw the eth that you’re putting up as collateral to be a Staker.
It is a pretty simple method. You can either purchase these tokens on an exchange or on a decentralized exchange or you can go to a page like Lido and you can even access this through the Ledger app or the trezor app if you’re using a hardware wallet. You can exchange your ETH for State ETH tokens in those places. So it is pretty simple, all you have to do is have ether in an Ethereum wallet. It takes a couple of clicks and you’re done.
In terms of the reward, it’s kind of similar to staking through a centralized exchange like coinbase. Obviously, the Lido validators are taking a percentage of the staking yield, and then you’re getting slightly less than the full amount. According to stakingrewards.com currently, if you stake with Rocket Pools liquid staking you can get 4.42% per year but if you stake with Lido’s liquid sticking you can get 4.72% per year. It’s approximately the same as staking through a centralized service but the risks are slightly different. When you give your eth to coinbase or binance you have to trust that they are actually going to uphold what they’re promising to do, which is pay out the rewards and then give you back your eth whenever you want it. Well in this case you have to trust that these smart contracts that are set up for you to exchange ETH for STETH won’t break that there won’t be a hack and that someone will be able to come in and steal all the money. Also in the case of Lido, there’s a limited number of validators in a validating pool and you also have to trust that those validators are going.
It’s better than giving them to one centralized service provider like coinbase but is not as good as a fully decentralized model. Some of the different staking providers offer liquid staking derivatives and Rocket Pool is actually one of the best in terms of being open source and being permissionless and trustless. Whereas Lido is slightly not as good because there is a limited pool of validators that you have to trust. The final risk currently with this staking method is that eth and STETH, whatever their form could actually depeg and this is because some people could be trading it at a discount because they’re trying to factor in the risk. For example, Ethereum staking withdrawals are not actually enabled at any point in the future or at any point in the near future because if that doesn’t happen it means everybody that staked their eth won’t be able to withdraw it, which would be a massive problem. Sometimes you do see STETH trading at a discount to ETH. For example, if a STETH is trading at 0.987, so a 1.3 discount to what it should be. However, these discrepancies should go away once eth staking withdrawals are actually enabled. Which is supposed to happen at some point in 2023.
Leveraged Staking
The third easiest way to Stake Ethereum crypto is actually to do leveraged staking with liquid staking derivatives as well and just by the name you can probably already tell that this is going to be much higher on the risk factor. Also higher on the reward Factor but it is pretty easy. It’s very similar to purchasing Lido steak ETH or rocket pool staked. You can purchase leverage stake ease tokens with service providers like Indexcoop that offer APIs in excess of 20%. Currently, icETH is paying about 24% per year but it is relatively simple to get this leveraged stake ETH and the rewards are pretty attractive. Of course, that does not come without risk.
Basically, the icETH or Indexcoop eth is taking Ethereum and then is taking a loan against that Ethereum, and then purchasing staked eth with that. Then repeat the process several times creating this compounding effect. The loans are being paid off partially with the return that comes from the eth staking. So this token icETH is staked at a 3.1 X leverage. The main risks with this method are first of all there is smart contract risk. For example, if the code is somehow not up to standard and it’s hackable then there is that risk there and then there is the liquidation risk. For example, if there’s too much price volatility or if it gets too levered, or if staked depends on regular ETH for any significant amount of time and any significant margin then there is the risk that overall there could be a liquidation event. Also if too much eth gets deposited into the eth staking ecosystem then that brings the staking yields down and it could make it more difficult for the interest on the loans that are occurring on this leveraged model to be paid off. So there’s also a risk with the yield rate of the state Ethereum. There are definitely a few risks here.
Stake Ethereum as a Service
The fourth easiest method is eth as a staking service. Now basically what you need for this is 32 ETH. So there is some difficulty in that sense and you have to have a pretty significant amount of capital to actually participate in it. But once you have that the beauty of eth as a staking service is that you don’t need to actually purchase equipment and run the validator node yourself, you don’t have to handle all the software and anything like that. All you have to do is have the 32 ETH and earn the yield from that. According to stakingrewards.com, you can earn approximately 4.79% per year with this method. So slightly more than if you were just purchasing Lido STETH. Relatively simple method, you don’t have to deal with equipment or anything like that. There are different options for staking providers with different trade-offs in terms of decentralization or being open source.
The risks depend on which you choose but generally the risk level is pretty similar to if you were just purchasing a Lido STETH, rocket pool token. You have custody of your own assets but there is smart contract risk and potentially some open source issues. The decentralized versus centralized trustless versus non-trustless risks that you have to weigh-off.
Be a Staking Pool Validator
The fifth easiest way to stake ETH tokens and now we’re getting into the realm of the more difficult where you actually have to purchase equipment and download software and deal with that aspect of things but you can actually be a validator in these staking pools. For example, if you wanted to validate with RocketPool as opposed to just holding rocket pool Staked ETH what you need to do is get your hands on 16 ether tokens. Also, some RocketPool RPL token collateral, and then rocket pool gives you 16 eth. Which has been pulled from other people and with that you can actually spin up your own validating node. You have to pay out the rewards to the other 16 ETH that you’ve collected from the pool and then you get whatever’s left over. This is much more complex because you actually do have to purchase equipment and run the software, the validating node on that Hardware equipment in your home. So you need to have an energy source and a reliable source of internet.
The reward for this generally if you have good uptime on your node is going to be better than if you were just holding the rocket pool State eth token because you do get additional rewards in exchange for actually having to deal with the equipment and the software. On the other hand, if you’re not a reliable validator and you have a lot of downtimes then you run the risk of getting less rewards.
Solo Staking
The sixth and final way that you can stake your ETH. The most difficult way is to be a solo validator, which means you’re not getting pulled ETH from anyone else. You have to put up all your own collateral. You need at least 32 ETH, the equipment, the software, a reliable internet connection, and a steady source of power. Once you have all of these things then you can actually spin up your own validator node. This is the best actually for the Ethereum network because you participate in validating transactions but you’re not beholden to anybody else. So you’re upholding the decentralized nature of the network.
The main benefit of this method of staking is that you get all of the rewards. Depending on whatever the variable rate is of Ethereum staking you get 100% of that. On the risk side currently, you can actually withdraw that and this isn’t a liquid staking derivative method. That means that your 32 ETH and whatever EHT you’re making as a validator in terms of your rewards is locked in the contract until there’s a hard fork and withdrawals are enabled, which could happen sometime next year. But it’s not necessarily guaranteed and that is really the main risk of this method of staking. For example, if Ethereum goes down or if they don’t enable withdrawals soon enough then that is a risk.
